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Distribution Agreement Termination Clause

04.08.21 Posted in Uncategorized by

We also believe that the parties must “go with the river” in most distribution agreements that must last over a period of time. Product change, change of management, brand change, market taste change and, in fact, almost everything in the business environment in which manufacturers and distributors operate can virtually be guaranteed that they are significantly different ten years after the signing of the agreement. Most distribution agreements last a long time, so we believe that the letter that embodies these agreements should be flexible enough to cope with the changing environment, without the parties needing to constantly change the agreement. A distribution agreement allows a distributor to transport or resell products purchased by a manufacturer. The manufacturer supplies the products and the distributor acts as a seller, either as a wholesaler or as a distributor. The distribution agreement may be exclusive, with a single distributor using a manufacturer for a particular product or region. The agreement may also allow several distributors to collaborate with several manufacturers. The manufacturer generally states the terms of the agreement, including all marketing tactics or product licensing procedures, and the distributor agrees to comply with these conditions. It is possible to regulate a non-competitive obligation after the termination of the contract. Such an obligation is common in agency relationships.

It is important to explicitly define the extent of the territory, products or services and the duration of the non-competition obligation. The duration of non-competitive competition may exceed one year for the distributor and two years for the representative. Under Turkish law, Article 123 of the Turkish Code of Commerce (“TCC”)[3], which governs the agency`s relations, provides that the parties may agree to a cessation of employment ban, provided that an appropriate amount of compensation is paid to the agent. The out-of-competition agreement must be concluded in writing and a written document must be provided to the representative, who carries the provisions of the agreement and which is signed by the awarding entity. Such an agreement can only be concluded for a maximum of two years from the date of termination and should be limited to the geographical area or clientele entrusted to the agent, as well as the type of products covered by the agency contract. Council Directive 86/653/EEC [4] (“directive”) contains similar provisions, with the exception of the payment of appropriate compensation to the agent, but allows national legislation to impose further restrictions. The Federal Insolvency Act allows a bankrupt company to confirm or deny current contracts. If a distributor goes bankrupt, the distribution agreement may be its main asset. Therefore, the distributor can confirm this contract. If so, the manufacturer will not have the choice to go under the federal insolvency law, but with confirmation.

However, we find that it is not as serious as it initially appears. While the manufacturer is required to continue to comply with the contract, there are also obligations for the distributor/liquidator.

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